I shall be delighted to answer that point in a moment, and I hope that the hon. Member will not be disappointed when I come to it.
I am trying to ask the Government: what is it that they are putting to the House? Are they saying that our export costs are too high? Does the President of the Board of Trade believe that our export costs are too high, that our prices are too high, and that we have to bring them down with all these fantastic and irrelevant cuts? Is that the suggestion? Or is it, as he was rather indicating a few minutes ago, the feeling that there is too much buying of goods on the home market and that somehow we must withdraw purchasing power from goods for the home market and drive those goods abroad? If that is what the right hon. Gentleman thinks, I suggest that he returns to Lancashire and asks Lancashire whether they think there is too much buying of consumer goods on the home market.
The whole approach is based on a misunderstanding of the situation in this country. The Chancellor of the Exchequer is in the position of an 18th century quack dealing with a case of tuberculosis and to cure it he has prescribed a crude course of blood letting. Blood letting as a means of curing tuberculosis is just as relevant as the Chancellor's cuts are to the present situation. The reason why we are not getting the engineering exports abroad that we need to at present is the overloading of the engineering industry and the shortage of steel and other products caused by the re-armament programme combined with a certain psychological feeling that exports are no longer as important as they were.
I draw the attention of the right hon. Gentleman to that very authoritative journal, the Journal of the Institute of Exports, which said in a recent issue:
Although re-armament has not as yet occasioned any substantial decline in the monthly totals of export trade, exports, particularly of capital goods, would be very much larger than they are but for the effects of re-armament.
Statistics tell only half the story. They give no indication of how shortages of steel and other materials diverted to re-armament may affect the production for export next year not only of end products but of a thousand and one essential components. But, particularly, they give no guide to what (for want of a better omnibus term) may be called industry's psychological attitude to exports.
The right hon. Gentleman will find more of a guide to export problems in that journal and those remarks than in anything he has told us this afternoon.
The fourth factor in the economic situation is declining production in the country. The Chancellor made very little reference to production yesterday. My right hon. Friend the Member for Leeds, South (Mr. Gaitskell), commented on that. We are facing a situation today for the first time since the end of the war in which the country's production is declining. We have seen tremendous increases in production—the right hon. Gentleman gave the figures—and increases in exports, but in the last few months we have begun to see a decline in physical production in this country. That is one of the factors the right hon. Gentleman has to take into consideration.
The fifth factor, referred to by my right hon. Friend, is the problem of cheap sterling, of black market commodity deals and the rest of it which are going on on a considerable scale at the present time, as the Chancellor well knows. We have a big deficit with Europe, a deficit which, as the Chancellor knows, means payments as to 100 per cent. in gold very shortly. That deficit is being intensified by a hidden flight of capital going on at present, and the Chancellor well knows it. One factor about that is that it might be reversed at any time and greatly improve the situation, but I believe that the Government's playing up of this crisis in the way they have in the last few months has greatly intensified this flight of capital from the country and, therefore, our losses in gold.
If I am right in saying that that is one of our major problems, this is the worst time for the right hon. Gentleman to go in for an experiment of freeing foreign exchange. He argues two things; first that we have inflation and, secondly, that this inflation is the cause of our overseas problems. I beg this House and the Government, do not let us be hypnotised by this nonsense about inflation at the present time. Rising prices, yes, prices are rising due to world causes last year forcing up the price of raw materials and, to some extent of food. And, because we did not deal with those rising prices by a sufficiently radical policy of subsidies last spring, there has been set up something of a price-wages spiral.
But the position of the economy of the country at present is not one of inflation, but rather one of incipient deflation. No one can come and tell the story nowadays of too much money chasing too few goods. We know perfectly well from the slump in the consumer goods industries that that would be a totally wrong description. We have unemployment and short-time working in textiles, clothing, boots and shoes, furniture and a whole range of consumer goods industries for the reason that the average family, once it has paid the amount necessary for food and rent, has nothing left over for other consumer purchases. Now comes the right hon. Gentleman with a proposal to make that situation even worse. The sale of periodicals, beer, tobacco and cinema attendance all prove that we are moving into a situation of deflation.
The right hon. Gentleman has followed a tough policy in the City. He has tightened up interest rates and bank lending and has already started on a very big scale something he mentioned yesterday, the tightening up of hire purchase restrictions. He has done it already through the banks and it is already causing a great diminution of consumption and much greater unemployment, particularly in the development areas, in Wales, the North-East Coast, in Scotland and Lancashire. That is where the right hon. Gentleman at this moment, whether he likes to think he is doing it or not, is creating unemployment by his financial policy.
Of course there are economic theorists and financial journalists who say this is a good thing and that we want unemployment as it will help to direct workers into the engineering industries or the re-armament industries where there is supposed to be a shortage of labour. The shortage of labour in the arms industries is very largely a myth. There is no real shortage of labour in the arms industries; most of these factories could not employ additional workers because those sections of industries which can get orders, the defence industries, cannot get raw materials. A large section of industry is paralysed at present by the shortage of raw materials, particularly of metal.
The theorists say that we cannot have unemployment due to under-demand and unemployment due to deficiency of materials at the same time, but in this unbalanced, overloaded economy of today we have got both at the same time and, unless something is done, we shall move into a position of far more serious unemployment.
I must refer to what the right hon. Gentleman said about utility. I thought he was guilty of misleading the House by his reference to the appointment of that Committee. Both he and the Chancellor tried to give the impression—or succeeded in giving the impression, whether they tried or not—that the problems and unemployment in textiles today were due to Purchase Tax. They must know—their advisers must tell them—that that has nothing to do with it. A great deal of the unemployment exists through the failure to sell utility goods which are tax free and insofar as there is unsettlement or expectation that Ministers are going to start taxing utility, that would lead to a clearance in the shops and not to a slump. Really he should not try to argue that way in this House in the presence of people who know a little about it.
There is a tax problem, I agree with the right hon. Gentleman, and I can guess what will be in the Douglas Report. I shall not embarrass the right hon. Gentleman by saying what will be in it, but obviously we know what it is likely to be. Ministers must not use that tax problem as an excuse for destroying the utility scheme. I said this in Lancashire 10 days ago. The utility scheme is one of the best protections our housewives have, giving them some real assurance of quality. I announced in this House on behalf of this party that we intended to make it a permanent feature of the national economy, and I hope the right hon. Gentleman will do that. There are difficulties. I set up a committee under my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) to try to get rid of some of these difficulties, and I hope the right hon. Gentleman will go further in that direction.
I warn the right hon. Gentleman that any attempt to destroy the utility scheme will be fought vigorously not only by those on this side of the House but, I am certain, by housewives and consumers throughout the country. Even if he is going to do it let him be honest and say why he is doing it—because manufacturers do not like controls and price controls, and not come along with some story about taxation. The right hon. Gentleman knows perfectly well from the experience in the case of children's clothing, where there is no tax even on non-utility goods, that it is possible to maintain a utility scheme even without tax differentiation, and I commend a study of that to the right hon. Gentleman.
The right hon. Gentleman referred to the crises of 1947 and 1949. We got through in those years by increased production because the people accepted the fact that the Labour Government were giving them a system of fair shares and particularly a fair burden of taxation. We are seeing more and more evidence that it will be the intention of the Government to destroy that policy of fair shares. "Away with the nonsense of fair shares," says the hon. Member for Croydon, East (Sir H. Williams). We do not mind him saying it, but when we are getting it from the Government Front Bench it becomes much more serious.
The equivocal position of the Chancellor of the Exchequer on the food subsidies this afternoon, the ominous remarks of the President of the Board of Trade on the utility scheme, and the extension of the health charges, all show that the Government have not the remotest idea in their heads of trying to solve the problem on the basis of a policy of fair shares. The health charges are something which many of us on this side of the House regret. In the speech I made when I resigned last year I said:
The principle of the free health service has been breached, and I dread to think how that breach might be widened in future years."—[OFFICIAL REPORT, 24th April, 1951; Vol. 487, c. 229.]
The right hon. Gentleman is coming along now and widening that breach.
It is not only a question of widening that breach. The Government have made it very clear that because this House accepted—I thought it was wrong—the principle of this ceiling of£400 million, these new health charges, these squalid charges for abdominal belts, deaf aids and the rest necessarily flow from that decision to maintain the£400 million ceiling.
The Chancellor yesterday said that this was a moral issue. He is right, it is, and the first need is to tear away these veils of intellectual dishonesty which are preventing a lot of people at present from facing the real issue. The Government are not facing up to the real cause of our economic crisis. They are dodging it with doctrinaire, irrelevant and class-conscious measures.
We have this long-term problem about which we are all agreed. The main consideration about the long-term problem is some settlement of the American problem. It means above all world planning of raw materials, expansion of raw materials to avoid shortages as the world economy develops and some long-term arrangements for the purchase of raw materials putting a floor in the market when prices begin to sink, as they have been doing recently.
I do not say that this crisis is caused by re-armament. Of course it is not, but re-armament has intensified the problem and made it more immediate; we shall not solve this problem until the right hon. Gentlemen opposite and some of my hon. Friends on this side of the House stop clinging to this sacred cow of a£4,700 million armament programme. It is generally accepted now the whole world over as excessive. It is accepted in the United Kingdom by many who were reviling a few of us when we expressed that view a year ago. It is accepted in Western Europe.
France will not be able to accept this excessive armament programme on top of her bankrupt and overloaded economy. Belgium and Italy are not even trying. The position is accepted even in the United States that this policy is now impracticable.
Last July I said "the Emperor has no clothes. When will someone admit it?" We are getting to the position where everyone is admitting that the "Emperor has no clothes"—even the Prime Minister, the Emperor himself. But there is another danger, the danger that instead of deciding that there must be a short sharp cut in the re-armament programme and a re-allocation of the physical burden—I am not talking about the financial burden, there is too much of a disposition to suggest that if we go on the munitions will not be produced, the programme will drag on from year to year, it will take three or four years longer perhaps than we thought, and that it will not do any harm.
That is a very dangerous fallacy. Harm is done to the economy not by the number of munitions produced at the end of it but by the strain and effort of trying to produce munitions that cannot be produced. That is the problem which the right hon. Gentleman must face.
It is quite clear now that the arms programme we are facing is taking on more and more of the nature of a pretence. It has no relation now to military preparedness. If the Government Front Bench thought we were facing the immediate danger of war would they be running down stockpiles in 1952, particularly those stockpiles of bulk goods which we accumulated painfully and at heavy cost last year? If they really were trying to prepare for the danger of war they would recognise that those stockpiles in this country represent a certain saving of shipping space in time of war and a saving of dozens, perhaps hundreds, of destroyers and lives. Yet in order to cling to this re-armament programme they are willing to sacrifice an essential part of it.